The Case for Accurate Records
Inventory records must be accurate in order to make valid planning
possible, maintain satisfactory customer service, determine
replenishment of individual items, release production
authorizations, and analyze inventory.
Inaccurate inventory records can result in lost sales, shortages,
excesses, missed schedules, low productivity, late delivery,
excessive expediting, and excess freight costs. Inaccurate inventory
records can also lead to over-ordering, which causes high
inventories and high obsolescence.
Requirements for Accurate Records
Accurate records depend on a good system for recording all receipts
and disbursements that affect inventory balances, qualified people,
effective audits, and timely correction of causes of errors.
What Is Cycle Counting?
Cycle counting is the sample counting of a few selected items
frequently, testing their record accuracy, and identifying and
eliminating causes of errors in the records. It reflects improvement
of the quality of records over time.
Disadvantages of Periodic Inventory
Cycle counting eliminates significant disadvantages of the periodic
physical inventory. Most people assigned to count during a periodic
physical inventory are unfamiliar with the inventory items, counting
methods and reconciliation techniques. Frequently, as many errors
are introduced into the records as are corrected. The plant and
warehouse must be shut down for inventory which disrupts
operations. At inventory time it is usually too late to find out
what happened, much less to identify and correct the causes of
How Accurate Should Your Records Be?
An acceptable level of accuracy is based on a value judgment. It is
usually expressed as the percentage of items where the inventory
record does not differ from the actual count by more than a
specified tolerance. The target level of accuracy should be 100%.
Initial Phase of Cycle Counting
Prior to initiating a full scale cycle counting program, a small
sample of items should be selected which can be cycle
counted repetitively as part of the daily activities of
storekeepers. The objective is to select a small sample which will
detect the causes of errors.
Select some purchased items, some manufactured items, some similar
in appearance, some small and numerous but difficult to count and
some which experience a changing unit of measure from ordering
through receipt into stock. After counting these items, verify that
the inventory record is correct. Then reconcile and adjust the
Count the same item at some interval short enough to insure that
only a few transactions need to be studied and that only recent
history needs to be investigated to detect the causes of errors.
When the sample test group can be maintained essentially error free,
expand the program into a regular full scale cycle counting
During the initial phase of cycle counting problem areas can be
identified by answers to the following questions:
• Is storage space adequate?
• Are items stored in an orderly manner to facilitate counting?
• Are items properly identified?
• Is access to storage area limited to authorized personnel?
• Is there an effective storage plan?
• Is there a locator system and is it operating effectively?
• Is obsolete, scrap, and inventory pending quality control
disposition segregated from "good" inventory?
• Is the system for reporting daily inventory transactions
• Is responsibility for reporting inventory transactions clearly
• Are inventory classifications compatible with the financial